Question 4:
In the absence of partnership deed, partners are expected to abide by the following rules in line with Partnership Act 1890, EXCEPT
A. Share profits and losses equally
B. Receive 5% interest on capital account
C. Receive no salary for being an active partner.
D. Collect no interest on current account.
E. Receive 5% interest on loan granted the business
The correct answer is (B)
Past Question and Answer Review:
A Partnership deed simply is an agreement between partners of a firm. This agreement provides details such as the nature of the firm, the duties of partners, rights of partners, their liabilities and the ratio in which they will divide profits or losses of the firm.
Although, drafting of partnership deeds are not compulsory, it is always advised to do so as it ensures that all terms agreed by partners exist in written form hence reducing disputes between partners and govern their functioning better.
Where there is no partnership deed, the following rules will apply:
1. The partners will share profits and losses equally.
2. Partners will not get a salary.
3. Interest on capital will not be payable.
4. Drawings will not be chargeable with interest.
5. Partners will get 6% p.a. interest on loans to the firm if they mutually agree.
So the correct answer is (B)
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